One of the highlights of Barrack Obama’s visit to the recently concluded Indian visit was the stress that Obama laid upon recognising the focus that PM Modi laid on enhancing the ‘ease of doing business’ quotient in India. PM Modi has not only made this his mission but has also made an international commitment in improving a benchmark in bureaucracy by a huge margin. India currently ranks 142nd out of 189 countries in ‘ease of doing business’. India further ranks 184th in ‘dealing with construction permits’. Only five countries are worse than India in the red tape associated with getting construction permits. This also means that Indian construction companies are dealing with the world’s toughest market in obtaining construction permits. India further ranks 186th in ‘enforcing construction contracts’. With such a poor business environment, it is no wonder that our developers have experienced a harrowing time and are now laden with crushing debt while they struggle with permissions or are awaiting arbitration awards. The Jaiprakash Gaur Group has been on an asset fire sale with a view to paring the debt. Its debt it to the tune of Rs 72,599 crore and its debt to equity ratio stands at 5.16. GMR Infra, meanwhile, has loans worth Rs 45,041 crore with a debt-to-equity ratio of 5.87. Gammon India and Hindustan Construction Company have higher ratios of 19.26 and 15.06, respectively. It is not infrastructure developers alone that need to ease their financial pressure, banks too are saddled with a massive Rs 8.5 lakh crore in stressed assets, which forms about 14 percent of their total loan book, making it difficult for them to take any initiative in providing any relief.
There are only two ways out: Either FDI comes pouring in or the economy takes off. Both will take time. The PM has put the greatest efforts in first visiting all countries from which we can hope for a high FDI inflow and then holding a huge Vibrant Gujarat show and getting the biggest leaders including the US President to India. Having brought the spotlight onto India and pushing India’s readiness for business he has set the stage for FDI to flow into India. However kickstarting the economy would need public spending or a great incentive for entrepreneurs to pull out all stops for investing into their enterprises despite the current challenging business environment. For e.g. the PM’s ‘Make in India’ policy is likely to offer a huge bag of goodies to encourage manufacture of electronics. India imports 65% of the current demand for electronic products, most of it from China. So dire is the situation that, the country’s electronics import bill may well surpass its oil import expenses by 2020.While the demand for electronics hardware in India is projected to increase to $400 billion by 2020, the estimated domestic production could rise to $104 billion only, creating a gap of $296 billion, which has to be met through imports. India imported $31 billion worth of electronic items in 2013-14 of which $10.9 billion was accounted for by cell phones alone.
The economy is showing signs of a consistent improvement as evidenced from the HSBC PM indices. The rail freight by volume has improved by 5% over previous year. On January 15, the RBI cut the policy rate by 25 bps to 7.75%, the first cut since May 2013, before the monetary policy meeting scheduled on February 3. As per a report, the medium and heavy commercial vehicle segment, which signals improvement in the economy, is scheduled to see a volume growth of 13-17 per cent next fiscal and accelerate the CV sector, while LCVs will see only a marginal growth of up to 3 per cent.
The forthcoming budget is likely to be PM Modi’s big opportunity in propelling the economy forward on the back of concrete evidence of a revival. The vision of India is changing and every Indian needs to reaffirm his or her commitment to supporting the rebuilding a #NewAgeIndia.
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